1. Meeting the challenge is not a choice between growth and climate change… a climate smart world is within reach if we act now, act together and act differently… … and build on new finance, technology and capacity at scale. Climate change as a development challenge Jari Vayrynen, Sr. Environmental Specialist, World Bank

2. Objectives:  Enable WBG to effectively support sustainable development and poverty reduction, as climate risks and climate-related economic opportunities arise  Facilitate global action and interactions among all countries Key principles:  Working in partnerships guided by UNFCCC process  Country-led, country-driven, “no regrets” actions  Approach tailored to specific needs of diverse clients WB Strategic Framework for Climate Chance and Development MDB & UN Partnerships Knowledge & Capacity Climate Investment Funds Bottom Up Momentum Resource Mobilization Regional / Country Strategies

3. Financing Climate Change Mitigation Scale of financing needs for mitigation estimated by UNFCCC at $200 billion annually Concessional resources are very limited for low carbon investments in developing countries and transition economies Mobilizing private sector finance is crucial –Market mechanisms can play a central role

4. Finance scaled-up demonstration, deployment, and transfer of low carbon technologies Country Investment Plans:  Support country development strategies  Leverage financial products of International Financial Institutions  Stimulate private sector engagement Clean Technology Fund (CTF) ± $5 billion Strategic Climate Fund (SCF) ±$1 billion Targeted programs with dedicated funding to pilot new approaches with potential for scaling up  Pilot Program for Climate Resilience: Mainstream climate resilience into core development planning  Forest Investment Program: Reduce emissions from deforestation and forest degradation  Scaling Up Renewable Energy in Low Income Countries

5. Mexico Turkey Egypt Energy Efficiency - Replacing inefficient lighting and appliances; expected emissions reductions of 4 million tons of CO2 per year Urban Transport - 20 bus rapid transit corridors with low-carbon bus technologies Renewable Energy Proposed CTF » $500 million leverages » $6.2 billion Renewable Energy - Implementing "intelligent" grid management and control systems to support large-scale integration of wind power Renewable Energy and Energy Efficiency - Promoting private sector development through credit lines to local development banks Proposed CTF » $250 million leverages » 2.1 billion Wind Power - From <1,000 MW to 2,500 MW of electricity from wind Urban Transport - Six bus rapid transit corridors and five light rail route Proposed CTF » $300 million leverages » $1.9 billion Investment plans endorsed with a total funding envelope of US$1.85 billion Average leverage US$ 1 to 10 Pledges (+/-) US$5 billion

6. 6 World Bank Carbon Market initiatives World Bank Carbon Market initiatives World Kyoto Funds under implementation reaching over $2 billion in funding and about 130 ER purchase agreements signed Progress with new facilities: Exploring possibilities for further engagement  Carbon in Agriculture sector  Carbon Capture and Storage (CCS) Carbon Asset Development Fund (CADF) operational at €7 million Carbon Fund currently €100 million (minimum target €200 million) Carbon Partnership Facility (CPF) Forest Carbon Partnership Facility (FCPF) Operational since June 2008 - current donor pledges at $107 million 37 Developing Country Participants

7. How do carbon markets work? What is traded? What is the underlying principle? Units = tons of carbon dioxide (or equivalent) allocated as part of an emission cap or “reduced” by a project or program activity. These units are labeled based on the market segment in which they are traded : AAUs, CERs, ERUs, EUAs, VERs, etc. Cost-effectiveness: a ton of CO 2 emitted anywhere in the world has exactly the same impact on climate change and should therefore be reduced/ mitigated where the cost of doing so is lowest. Why should this be of interest? Significant new investments and financial flows Application of new technologies and financial instruments to reduce emissions at lower costs; and Transition to a lower carbon economy better tuned to cope with future resource and environmental constraints. What are the benefits? Lowers compliance costs for meeting emission reduction obligations; ; Catalyzes financial and technology flows to developing countries to facilitate low-carbon growth; Creates a global and long-term price signal to lower carbon intensity.

8. Beyond domestic actions to reduce emissions, a country can use trading to purchase reductions in another country to achieve compliance with its Kyoto obligations. Examples of trading options include: Buying emissions ALLOWANCES (called AAUs) from other countries with commitments which are below their Kyoto cap (International Emissions Trading) Purchasing carbon OFFSETS from projects which reduce emissions In developing countries (Clean Development Mechanism – CDM) In economies in transition (Joint Implementation – JI) Kyoto Protocol-based carbon markets Domestic actions Baseline emissions 1990 “Business as-usual” projected emissions by 2008 1990 Baseline Kyoto target Allowances from IET Project-based Offsets (CDM/JI) 2008-12 Kyoto allowed emissions Projected emissions increase between 1990 and 2008-2012 Sources of reduction CDM: Offsets obtained from a non-Annex I country JI: Offsets obtained from another Annex-I country; IET: Kyoto allowances obtained from another Annex-I country A significant amount of the reduction must be achieved through domestic measures 3

9. Industrialized country with an emissions cap Baseline emissions Baseline Scenario Emission Reduction Units (ERUs) Project emissions Project Scenario How does Joint Implementation (JI) work? Emissions target Purchase of allowances Project benefits from increased cash flow $ $ ERU Purchase of ERs Domestic action

10. Carbon Market Values in 2008 (in M US$) Allowance Markets Project-Based Transactions CDM 6,500 EU Emission Trading Scheme 91,910 Secondary CDM 26,300 JI 300 Assigned Amount Units 210

11. World Bank Carbon Finance Projects in Bulgaria Joint Implementation projects: –Sofia District Heating –Pernik District Heating –Svilosa Biomass Green Investment Scheme (GIS)– options study –GIS is a system where revenues from AAU trades are reinvested in environmental projects –To our knowledge Bulgarian Government has not yet concluded any GIS transactions 11

12. 12 Climate change is fundamentally a development issue, not only an environmental issue Huge financing needs –Carbon markets will continue to be play a major role in catalyzing low carbon investments in developing countries and transition economies The World Bank, through a range of financial instruments and capacity building activities, is deeply engaged in this effort Conclusions

13. Thank You. Jari Vayrynen jvayrynen@worldbank.org Please visit us online at www.carbonfinance.org